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  3. American Economic Journal: Macroeconomics
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  5. ‘Less is More’: Consumer Spending and the Size of Economic Stimulus Payments

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

‘Less is More’: Consumer Spending and the Size of Economic Stimulus Payments

  • Michele Andreolli
  • Paolo Surico
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

We study the consumption response to unexpected transitory income gains of different size, using hypothetical questions from the Italian Survey of Household Income and Wealth. Affluent households exhibit a higher Marginal Propensity to Consume (MPC) out of large gains while families with low cash-on-hand display a higher MPC out of small gains. We show that the spending of higher earners is consistent with the predictions of a model with non-homothetic preferences on consumption while the MPC heterogeneity across shock size for low-income families can be accounted for by borrowing constraints.

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